RATING RATIONALE
13Nov2020
Dadu Pipes Pvt. Ltd.
Brickwork Ratings assigns the ratings for the Bank Loan Facilities of Rs.40.00 Crs. of Dadu Pipes Pvt. Ltd.
Particulars| Facilities** | Amount (Rs.Crs.) | Tenure | Rating# | ||||
|---|---|---|---|---|---|---|---|
| Fund Based | |||||||
| Cash Credit Sanctioned | 09.00 | Long Term | BWR | ||||
| Cash Credit Sanctioned | 02.00 | ||||||
| Working Capital Demand Loan Sanctioned | 12.00 | ||||||
| Sub Total | 23.00 | ||||||
| Non-Fund Based | |||||||
| Bank Guarantee Sanctioned | 11.00 | Short Term | BWR | ||||
| Bank Guarantee Sanctioned | 06.00 | ||||||
| Sub Total | 17.00 | ||||||
| Grand Total | 40.00 | (Rupees Forty Crores Only) | |||||
**Details of Bank Loan facilities,consolidation or instruments are provided in Annexure RATING ACTION / OUTLOOK
Brickwork rating has assigned the long-term rating and the short term rating as BWR BB+ and BWR A4+ respectively with Stable Outlook on account of extensive experience of the management and established brand name, healthy debt protection metrics, diversified product and customer portfolio, moderate installed capacity and its optimum utilization.
The ‘stable’ outlook indicates a low likelihood of a rating change in the medium term. BWR expects that the company’s performance is likely to be maintained in the medium term.
The rating, however, is constrained by weak profitability margins and moderate net-worth, susceptibility to slowdown in end user industries, cyclicity inherent in the iron and steel industry, intense competition fragmented nature of the industry and impact of COVID-19 outbreak.
KEY RATING DRIVERSCredit Strengths:
-
Experienced Management and established brand name :
Rajesh Kumar Agarwal, Satish Kumar Agrawal and Anita Agarwal are the Promoters of the company managing day to day operations. The Directors have an experience of over 2 decades in the steel industry which has enabled the company to establish relations with suppliers and customers. The company has been manufacturing Steel Tubes & Tubular Poles under the brand name of DADU and DPL STAR which is a popular brand.
-
Moderate Debt Protection Metrics :
Debt servicing capabilities remained moderate, reflected by ISCR and DSCR at 2.09X and 1.70X in FY19. As per FY20 (Prov) both the ratios have been estimated to be at 2.10X and 1.64X depicting the financial capacity of the company to repay its debt obligations.
-
Diversified product and customer portfolio :
The company has a diversified product profile comprising Black & Galvanised Steel Tubes, ERW Steel Tubes, Square And Rectangular Hollow Sections and Swaged Type Steel Tubular Poles. The customer base also remains diversified spanning State Electricity Board, Govt Organizations (NTPC UPPCL, UPCL, HPSEB, MPSEB etc), Oil Refinery Companies (BPCL, IOC etc) and Real Estate/Construction Companies (NBCC, NCC etc, DMRC, Indian Railway etc).
-
Moderate installed capacity and its optimum utilization :
The company has two manufacturing units, both located at Sikandrabad, Uttar Pradesh with a total installed capacity of 80000 metric tons per annum. Presently the installed capacity has been utilized upto 41605 metric tons i.e. almost 52%. There is further scope of an increase in revenue as the unutilized capacity of 48% is still available.
Credit Risks:
-
Thin profitability margins and moderate net-worth :
Profitability Margins are thin i.e. Net Profit Margin and Operating Profit Margin were at 1.25% and 3.64% in FY19. Both the ratios have been estimated to increase to 1.30% and 3.75% in FY20 (Prov.). In FY20 (Prov) the company has reported a moderate Capital Structure with TNW and Gearing stood at Rs.18.45 Cr. and 1.82X.
-
Cyclicity inherent in the iron and steel industry, intense competition and fragmented nature of the industry :
The iron and steel industry is sensitive to the shifting business cycles, including changes in the general economy, interest rates and seasonal changes in the demand and supply conditions in the market. The steel industry is also dominated by numerous independent, small-scale enterprises. High degree of fragmentation due to the presence of a large number of unorganized players has led to high competitive intensity in the processing segment.
-
Susceptibility to slowdown in end-user industries :
Demand for steel tubes and pipes depends on end-user industries such as oil and gas, power, and water etc. Any slowdown in the aforesaid industries could impact DPPL’s operating performance.
-
Impact of Covid-19 outbreak :
The company operates in a labor intensive industry. Due to outbreak of the pandemic COVID-19 in March 2020 which had triggered a nationwide lock-down, hordes of migrant workers had returned to their hometowns which resulted in labour shortage and hampered logistics movement. The company has started the production in mid May and it is back on track which in turn may not impact the firm's business as much. In 6MFY21 the company has already achieved Rs.55 Cr.
For arriving at its ratings, BWR has applied its rating methodology as detailed in the Rating Criteria detailed below (hyperlinks provided at the end of this rationale).
RATING SENSITIVITIES
Going forward, the company’s ability to maintain its financial risk profile and business risk profile would be the key sensitivities over the short to medium term.
Positive : The rating outlook may be revised to positive if the company infuses the capital into the business and strengthen the gearing levels.
Negative : The rating may be downgraded if there is deterioration in the liquidity profile. Deterioration of current capital structure would be a credit negative.
LIQUIDITY INDICATORS -
Liquidity position of the firm is adequate, marked by healthy Net Cash Accruals of Rs.2.85 Cr. and Rs.3.21 Cr in FY19 and FY20 (Prov.) respectively against the debt obligations of Rs.0.36 Cr. and Rs.0.56 Cr. depicting the company's sufficient liquidity to pay off its short term obligations. Conversion cycle is of 84 Days in FY20 (Prov.), representing lower duration of time the company takes to sell its inventory, collect its receivables and pay its bills. Cash and Cash Equivalents were at Rs.4.40 Cr. in FY20 (Prov) which has increased from Rs.2.88 Cr. in FY19. Current Ratio in FY20 (Prov) is at 1.56X which is adequate. Average utilization of CC Limit is 97% of the CC Limit in the last four months.
ABOUT THE ENTITYDadu Pipes Pvt. Ltd. (DPPL) was incorporated on 15 May, 2006. DPPL is engaged in manufacturing of Steel Tubes & Tubular Poles under the brand name of 'DADU' and 'DPL STAR'. The products are mainly used in transmission of gas, oil, water, electricity, structural formation and construction of buildings & infrastructure etc. The company sells its finished products to reputed public sector undertakings, government departments and private companies. DPPL has two manufacturing units, both located at Sikandrabad, Uttar Pradesh with a total installed capacity of 80000 metric tons per annum. Presently the installed capacity has been utilized upto 41605 metric tons i.e. almost 52%. Rajesh Kumar Agarwal, Satish Kumar Agrawal and Anita Agarwal are the Promoters of the company. All are graduates. The promoters have been in the same line of business for over 2 decades. Major raw materials for the company are HR coils and steel sheets which are mainly procured from Steel Authority of India Limited. The 50% of the revenue has been contributed by the sales to government departments via directly supply to Govt Organisations as well through Govt Approved Contractors and 50% has been contributed by the private players.
KEY FINANCIAL INDICATORS (Standalone)| Key Parameters | Units |
FY 18-19 (Audited) |
FY 17-18 (Audited) |
|---|---|---|---|
| Operating Revenue | Rs.Crs. | 188.35 | 135.31 |
| EBITDA | Rs.Crs. | 6.86 | 5.27 |
| PAT | Rs.Crs. | 2.35 | 1.49 |
| Tangible Net Worth | Rs.Crs. | 15.83 | 13.48 |
| Total Debt/Tangible Net Worth | Times | 2.11 | 1.86 |
| Current Ratio | Times | 1.47 | 1.53 |
NON-COOPERATION WITH PREVIOUS CREDIT RATING AGENCY
| CRA Name | Date | Amount | Rating |
|---|---|---|---|
| CARE | 19 Mar 2020 | 30.00 | CARE BB- (Stable)/A4 |
BWR complexity levels are meant for educating investors. The BWR complexity levels are available at www.brickworkratings.com / download / ComplexityLevels.pdf. Investors queries can be sent to info@brickworkratings.com.
| Analytical Contacts | |
|---|---|
|
Aayush Verma Ratings Analyst Board : +91 11 2341 2232 aayush.v@brickworkratings.com |
Satvinder Kumar Gakhar Associate Director - Ratings Board : +91 11 2341 2232 satvinder.g@brickworkratings.com |
| 1-860-425-2742 | media@brickworkratings.com | |
| SL.No. | Type Of Facilities | Long Term(Rs.Crs.) | Short Term(Rs.Crs.) | Total(Rs.Crs.) |
|---|---|---|---|---|
| 1 | Cash CreditSanctioned | 9.00 | _ | 9.00 |
| 2 | Bank GuaranteeSanctioned | _ | 11.00 | 11.00 |
| 3 | Bank GuaranteeSanctioned | _ | 6.00 | 6.00 |
| 4 | Cash CreditSanctioned | 2.00 | _ | 2.00 |
| 5 | Working Capital Demand LoanSanctioned | 12.00 | _ | 12.00 |
| Total | 40.00 | |||
| TOTAL (Rupees Forty Crores Only) | ||||
| Instrument | Issue Date | Amount (Rs.Crs) | Coupon Rate | Maturity Date | ISIN Particulars |
|---|---|---|---|---|---|
| NA | NA | NA | NA | NA | NA |
| Name of Entity | % Ownership | Extent of consolidation | Rationale for consolidation |
|---|---|---|---|
| NA | NA | NA | NA |
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